The British budget has become a semi-annual process. The official one comes in the spring. But there’s also a not so mini version around now.

And this year’s, due Wednesday, may be less mini than most. Chancellor of the Exchequer George Osborne has to deal with below-target growth and above-target deficits and no sign that either will return to stable trend anytime soon.

Keynesians tell him not to worry about the deficit and to use official borrowing to get growth going. Austerians tell him that’s the road to disaster.

He’s likely to listen to both.

Half way through a five-year parliamentary term, the economy hasn’t been going Mr. Osborne’s way. His initial promises of austerity were built on the premise that without a convincing program of fiscal probity, bond investors would abandon the U.K. market, leaving the country in much the same position as Greece.

Actual austerity was for the future, once the economy started to recover.

But any concerted recovery failed to come and instead the U.K. has struggled to post any meaningful growth, in spite of government deficits that have averaged around 7.5% of GDP since 2008, some of the biggest in the developed world. Fiscal tightening has largely been an illusion. Insofar as taxes have gone up, so too has spending.

Keynesians argue that talk of austerity has had a chilling effect on growth, as have increases in consumption taxes. The U.K. has underperformed the U.S. because it has not expanded fiscal spending by as much…

Is inflation a good or a bad thing? It might sound like an easy question. But actually it depends on who you are and what your portfolio looks like.

If you have lots of debt, and own equities, property and commodities, then inflation is pretty good. If you are a creditor, and own mostly bonds, then it is a bad thing.

Most of the time, there is a global argument going on between the people who want inflation and those who don’t. Whether prices rise or not depends on who wins.

Until recently, the balance has been about even. Of the major developed countries, the U.S. and the U.K. have been firmly in the pro-inflation camp. Europe and Japan were in the anti-inflation camp.

But right now, that power balance is shifting. Europe and Japan are about to switch to inflation. That will have huge implications for the markets. Such as? Property and blue chip equities will do well. Bonds will do badly. Most of all, gold will spiral up into the next phase of its bull run.

You’ll never hear a politician or a central banker arguing for inflation. It is about as acceptable in polite society as arguing in favor of pornography or junk food–no one is in favor of it, although funnily enough there seems to be a lot of both about.

Edward Garner, director at Kantar Worldpanel, said: “The remarkable growth rate recorded over the Jubilee is a sign of what’s to come during the Olympics when we expect grocery sales to soar. Competition is likely to be fierce with fortunes now considerably different among the big four.

“Both Tesco and Morrisons suffer share dips of 0.4 points this month whereas Asda and Sainsbury’s have seen their [market] shares strengthen.”

And then there’s Fresh & Easy, Tesco’s also unprofitable U.S. venture and an ever growing elephant in the supermarket’s stockroom. [See ex-Tesco boss Terry Leahy defend his decision to go into the U.S. in the video above]

Tesco has faced criticism in recent years for overstretching itself in international markets, while at the same time losing focus on the U.K., where rivals Asda, Sainsbury and Waitrose have all gained market share.

Before long, China will probably force the bank into action to keep the yen on the slide. The problem for Japan is this:

Recovery from the devastation of the tsunami a year ago is proving slow and painful, and deflation continues to threaten the economy.

With the government moving sluggishly on structural reforms that might help, the Bank of Japan has attempted to come to the rescue.

Last month, it surprised financial markets with an aggressive asset-purchase program and a promise to get inflation back up to 1%. The liquidity injection was designed to stimulate the domestic economy and to weaken the yen to help export growth.

Given its success, many expected the central bank to repeat the exercise this month. It didn’t. Instead, the bank just increased a credit facility designed to boost lending to growth industries.

Some financial markets were flummoxed, and yen sellers were discouraged. However, news from China could well put the Bank of Japan back on a more aggressive easing stance sooner than expected.

Massive deficits haven’t hurt. A shrinking trade surplus, no problem. Years of ZIRP just bounced off. Billions of quantitative easing made no difference. And now, the return of deflation. That won’t matter either.

In fact, the Japanese currency will probably bounce back even stronger than before. This Terminator of the financial markets just doesn’t operate like other currencies and there is little sign that that will change. At the moment, the yen is suffering from a bit of a weak spot as European banks liquidate their holdings in the Japanese government bond market as well as Japanese equities to cover their losses at home.

A warning from Standard & Poors Corp. about another downgrade because of the rise in Japanese bond yields hasn’t helped. And, Tokyo-based Rating and Investment Information now says there is a “50% to 100%” chance that it will strip Japan of its top-notch rating before 2011 is out.

Despite all that, as well as a report from the International Monetary Fund that the country’s fiscal position may be unsustainable, there is still no sign of some wholesale reversal of investment flows.

Platinum jewelry demand may have softened in Europe this year, but across the globe in Japan sales have been robust, and sparked by a rather unlikely event.

According to specialty chemicals company Johnson Matthey, a key player in the platinum group metals market, Japan’s March earthquake and tsunami has boosted the local bridal jewelry sector, supporting demand for platinum there at a time when purchases of most commodities has sunk.

“In the aftermath of the disaster more couples are getting married, temporarily reversing a long term trend toward later and fewer marriages, and stimulating purchases of platinum wedding bands as well as engagement rings,” Johnson Matthey said in its 2011 interim review of the market.

Leaders from the Group of 20 industrialized and emerging economies may be gearing up for their trip to Cannes this week but, in the currency markets at least, there’s little sign of the sort of international co-operation such get-togethers are meant to foster.

Bloomberg

Rather, scattered skirmishes proliferate across the foreign exchange front lines and all the major currencies are embroiled.

The central banks of both Switzerland and Japan have intervened heavily and unilaterally in the markets this year, in efforts to shoo investors out of their soaring “safe-haven” currencies, whose strength was crippling the home economy.

Japan was at it again, in force, just this week.

The U.K., meanwhile, opted last month to start printing sterling again with a second program of quantitative easing. In Washington the chances of a third are being mulled. Moreover a controversial bill to slap tariffs on countries with “undervalued currencies” has Senate approval, despite dark warnings from China that its passage into law would mean trade war.

Purchasing managers’ surveys suggest much of continental Europe is facing a downturn, if it isn’t already mired in one. The U.K. economy has slowed to a crawl and further turbulence in the euro zone would ripple through quickly into Britain’s already fragile export sector.

In the U.S., investment bank economists have been marking up their recession expectations. But some, like Lackshman Achuthan of ECRI, an organization that measures the U.S. business cycle, figures the economy is already sliding into a downturn. The ECRI’s leading indicators point to a contagious process of declining sales, falling production, falling employment, falling income and yet more drops in sales having started, according to Mr. Achuthan.

Developing economies look safer for now, although China’s sharper than expected slowdown is starting to feed through into speculative sectors, especially construction, where bad debts are beginning to shake confidence. If demand slows from the U.S., Chinese exporters will struggle.

The question for equity investors is how serious these recessions are likely to be.

Hard times for manufacturing around the world suggest that recent falls in commodity prices have a sound fundamental basis and aren’t simply a function of risk aversion generated by financial crisis, according to one economic consultancy.

Capital Economics said the deterioration in global manufacturing confirmed in the September purchasing managers’ index data mean that underlying demand for commodities is weakening.

The world manufacturing purchasing managers’ index, compiled by Markit, fell to 49.9 in September from 50.2 in August. Individual indexes for most major economies remained around the 50 mark, the line between expansion and contraction in the sector, but small improvements in the U.S. and U.K. were more than offset by a flat reading from China and falls in the euro zone and Japan.

Most worryingly, the world ‘new orders’ component, which is the most forward-looking snapshot, fell the furthest, arguing for an uncertain future.